American Career Institute Borrowers to Receive Automatic Group Relief for Federal Student Loans

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American Career Institute Borrowers to Receive Automatic Group Relief for Federal Student Loans

Education Department Announces Continued Progress with Borrower Defense and Closed School Loan Discharges
January 13, 2017

The U.S. Department of Education (ED) announced today plans to grant borrower defense relief for federal student loan borrowers who attended the now-defunct American Career Institute (ACI) in Massachusetts. This move follows the Department’s investigation as well as numerous admissions by the school that it made false and misleading representations to students, misstated job placement rates and employed instructors who were unauthorized to teach under applicable state laws. ED also announced substantial progress with processing borrower defense claims from former Corinthian Colleges Inc. (CCI) students, and that approvals are beginning for borrower defense claims from former ITT Technical Institutes (ITT) students. Additionally, ED announced that a significant number of closed school loan discharges have been approved, particularly for students impacted by the recent closure of ITT.

“With the help of state attorneys general, we’ve cracked down on bad actors that leave students with debt but meaningless credentials. We are especially grateful to Attorney General Healey and her team for investigating and uncovering ACI’s deceptive practices.” said U.S. Under Secretary of Education Ted Mitchell. “We’ve taken important steps to provide borrowers the relief they deserve. This is real progress. And more work remains to ensure that relief continues for borrowers who are deceived by institutions that engage in fraud.”

Beginning Jan. 17, borrowers who used federal loans to attend ACI programs in Massachusetts will begin receiving emails from Federal Student Aid informing them that any existing federal loans incurred as a result of enrolling at ACI will be automatically discharged. Of the roughly 4,500 students who attended ACI, 650 have already received closed school loan discharges. The remaining students will receive automatic borrower defense discharges.

“ACI was a predatory, for-profit school that admitted to breaking Massachusetts law and lying to its students. Today, these students are finally getting the relief they deserve,” Attorney General Maura Healey said. “I thank Secretary King and the Department for utilizing its authority to grant immediate group relief to our students, and the dedicated lawyers and investigators in my office for building the case against ACI. Our office will continue to help students struggling with unaffordable debt and hold predatory schools accountable for their illegal conduct.”

ACI enrolled roughly 4,500 students at five campuses in Massachusetts between 2010 and 2013. The school became the subject of a complaint filed by the Massachusetts Attorney General’s Office (MA AGO) in Nov. 2013 alleging the school engaged in “a range of deceptive schemes.” By June 2016, the MA AGO and ACI entered into a consent judgment which included numerous admissions that ACI made a series of false representations to prospective students and engaged in misconduct that is actionable under the Massachusetts Consumer Protection Act. These representations include purposefully misstating job placement rates for fifteen cohorts of students who enrolled between June 2011 and Dec. 2012 to maintain institutional accreditation.

The combined loan discharges and refunds of amounts already paid by ACI borrowers announced today will total roughly $30 million.

Continued Progress with Borrower Defense and Closed School Discharge Relief

The Department is making continued progress with adjudicating borrower defense claims and processing closed school loan discharges for impacted borrowers.  The Department has approved more than 12,000 additional claims from borrowers deceived by CCI’s falsified job placement rates since the most recent borrower defense claims report released in Oct. 2016.  Additionally, the Department has approved two additional types of borrower defense claims: those involving misrepresentations about the transferability of credits as the basis for debt relief, and those involving CCI’s false guarantees of employment for graduates.  To date, more than 28,000 total CCI claims have been approved, representing approximately $558 million in loan relief.

In Sept. 2016, ITT informed ED of its plans to cease operations. Following this announcement, ED launched an extensive outreach campaign to inform impacted students about their two primary recourses—seek federal student loan relief through closed school loan discharge, or attempt to transfer credits to another institution and continue their studies in a comparable program of study. To date, ED has received roughly 14,200 applications for closed school loan discharge from former ITT students. Approximately 6,300 have been approved totaling approximately $97 million in loan relief. Roughly 5,000 claims have been denied due to ineligible or incomplete submissions.  ED has also received over 2,500 borrower defense claims from former ITT students and is beginning to award the first discharges to affected students.

ED has already informed the vast majority of borrowers who have submitted claims that have been approved, but not yet discharged, of their approval status. Over 23,000 have already received an email notification. These borrowers can expect to receive full discharge relief within the coming weeks.

Building Debt Relief Awareness among Potentially Eligible Borrowers 

ED has continued pursuing various methods to inform borrowers that they may be eligible for borrower defense and closed school loan discharges. These include outreach to potentially eligible Corinthian borrowers who have not yet submitted applications through expanded postal mail outreach, a Facebook advertisement pilot, a servicer pilot that relies on emails, postal mail, phone calls, and texts, and an outreach partnership with state attorneys general. On Dec. 30, 2016, the Department published a new universal form to facilitate future outreach and to inform borrowers of how to apply for borrower defense relief. 

The Department will soon issue a Dear Colleague Letter addressed to privately-held Federal Family Education Loan (FFEL) holders with guidance on how to place FFEL loans in forbearance and halt collection activities when a borrower is seeking loan discharge through borrower defense. This guidance streamlines the process for suspending collection activity while the borrower’s claim is being reviewed by the Department.  

Protecting Students and Safeguarding Taxpayer Dollars 

The Obama Administration has worked tirelessly to protect students and taxpayers from fraudulent or failing higher education institutions. Those efforts include publishing final borrower defense regulations that protect student borrowers from misleading and predatory practices by postsecondary institutions and clarify a process for loan relief in cases of institutional misconduct. The regulations also protect taxpayers by ensuring that financially troubled institutions provide the government with protection against the risks they create. Additionally, the landmark Gainful Employment regulations end Federal student aid eligibility for career colleges that are not paying off for their students.  The recently released debt-to-earnings rates for Gainful Employment programs build on the Department’s ongoing efforts to promote college completion and increase accountability in the postsecondary education marketplace by setting standards for career training programs, including programs offered by for-profit institutions, to ensure they are serving students well.